Where’s the Money, Honey? Why You MUST Track Your Spending

This is a guest post from Gail Vaz-Oxlade, the host of the popular Til Debt Do U$ Part on CNBC (Saturday nights at 10 and 10:30). Gail is a columnist for Yahoo Canada, Chatelaine, and Zoomer Magazine and blogs daily at her website, where she also offers terrific tools people can use to dig themselves out of the hole. Gail’s latest book is Debt-Free Forever.

People are always scratching their heads about where their money goes. I get letters and emails every week bemoaning the fact that although they seem to make a good income, some folks just can’t get to the end of the month before they get to the end of the money. Of the hundreds of people I’ve worked with on Til Debt Do Us Part, only one person actually knew what she was spending. Astounding.

So, do you know what you’re spending every month? If you don’t know where your money is going, how can you ever hope to know what you may be over-spending on?

Unconscious spending is at the crux of the problem for most people who see their circumstances change even slightly:

Lost a few hours a week at work? Where will you trim?

Decided the time’s right to have a baby? What will you cut back on in your spending while you’re on maternity leave?

Just broken your leg, twisted your back or come down with something that’s gonna take more than a few days to heal? How will you cover your costs when your income slows to a trickle?

If you want to be able to cope with life’s little surprises you have to first know exactly where your money is going. Sure, you may have a big emergency fund, but you may need it to last a long time, so that’s no excuse for being complacent.

Giving up the delusion of “there will always be more money” is the fist step I make people take in my book Debt-Free Forever. Before I lead readers through the process of making a budget, I insist that they do a spending analysis. I’ve had more than a few complaints about how much work it is, how hard it is, how boring it is. Kwitcherbitchin! It’s the much over-looked first step. And the knowledge you’ll gain about how you spend your money is worth every minute of the work you’ll have to do.

Don’t even know where to start? Grab your last month’s bank statement(s), credit card statement(s), and line of credit statement(s). Now, break every transaction into one of the following categories:

In the best of all worlds, you’d do this for six months’ worth of your paperwork. Why? Well, a half-year is just about enough time to catch all the things that only pop up periodically. Less than six months will give you some insight, but not clearest picture.

Now add it all up. Are you surprised at the places your money has been going? Which categories brought the biggest surprises? For the couples I work with, it’s the small purchases made regularly, which add up to big money, that bring the wide eyes and gasps. They never imagined that their $10-a-day habit actually added up to so much money.

Once you know where your money’s going, you’re in a much better position to decide how you want to spend it. While it’s all very well and good to say you only plan to spend $400 a month to feed your family of 6, if you’ve been spending two or three times that, your $400 budgeted amount may be nothing more than wishful thinking. When you end up going over, you’ll blame the budget with a song like this: “See, budgets don’t work.”

It wasn’t the budget that didn’t work — it was you. Yup, your unwillingness to do the work to see where the money actually goes meant you were just grabbing numbers out of the air when you came up with that budget, instead of working from a place of knowledge and purpose.

If you’re determined to live a financially stress-free life, the first question you must answer is, “Where’s the money, honey?” Do that, and you’re well on your way to becoming conscious about your money and how you’re using it.

I know where you are coming from and I agree in general. That is a really good comparison, budgets with diets. But I have found it helpful in both cases to initially – or at some point – do the math or keep close tabs, just to give me some good ideas of what to change or what to watch. Then I will stop keeping track but I will know to avoid this high calorie food, or to cut back on that kind of spending. Example, I took stock of what I was spending per month on Kindle books, was completely shocked, and now I go to the library or buy dirt cheap used paperbacks from Amazon. I probably cut that spending by 90% but I’m not keeping track of it anymore, I’m just aware of it.

Don’t forget the medical category. I have large categories set up like housing, auto, medical, food, and several “discretionary” ones. Then each one is broken down into subcategories. For example, my housing category has mortgage, condo fee, utilities, phone and cable TV, home insurance, plus any household repair or appliance costs. I put each type of insurance spending (health, home, auto) into the proper larger category. I use several Excel spreadsheets.

At the end of the year, I also include how much of my money goes to income taxes, Social Security, Medicare deductions, pension contribution- I don’t have to track these payroll deductions myself but only look at the year-to-date totals on my payroll statement.

I also have subcategories of groceries vs eat-out in my larger Food category. I may have to start a red wine subcategory I now know that I spend about $400 a month on all food, on average. This is for one person living in metropolitan DC area and I rarely eat at restaurants. I do buy lunch occassionally and buy fast food sometimes. I like to cook for other people and bring tasty treats for my office colleagues but I don’t know how much extra this is costing me.

I track various subcategories that I have the potential to spend a lot of money on like : Gifts for other people, travel, books, my sewing hobby, clothes. I starting tracking spending last year, learned a lot and refined my spreadsheets for this year. Besides my salary, I also include other income such as peer-to-peer lending interest, Ebay or Craigslist sales, rebates, credit card rewards, monetary gifts or the occasional windfall. I started doing this to estimate what I need to live on so I can plan for retirement. A lot of my money goes into savings already, but I really needed the whole picture of where my non-savings money was going.

I realized once I took the time to look at where my money was going and how much I expected to be spending, I found lots of things where I was just wasting money. Starbucks when there’s coffee at work? Fast food when there’s food at home? Clothes when my closet is full? Just ridiculous amounts of stuff. It’s so nice to put that extra money into savings

What category do things like laundry detergent and cosmetics go in? Shopping seems to be too much of a catch-all. Can’t live with detergent if you want clean clothes and some of us have to appear a certain way at work.

I was one of those who hated the idea of a budget. It took my wife and I about six months before we could have our monthly budget meeting without a fight or getting upset. Now, I look forward to them because I see the progress and benefits of being IN CONTROL of every penny. Our goals are coming together and the best thing is the feeling of being on the same team.
If anyone is reading this and struggling, my advice would be just keep doing it and it’ll get easier every time. The benefits are well worth it!

It doesn’t even have to be that hard to track your spending. If you don’t want to write it all out, use a service like Mint.com. We pretty much live by debit cards these days, so the only thing we really have to track ourselves are cash transactions.

And for those, my wife and I each just get a certain amount per month of discretionary spending. It is our own business what we do with it. I’m a big fan of people having their own money they can spend on the little things without having to be accountable to whoever is keeping the receipts.

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